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Super Contributions

How much is enough?

Chris Morcom
Partner/Private Client Adviser
30 May 2011

When approaching retirement, for most people, the focus turns to making sure they have enough in superannuation and investments to meet their needs throughout retirement.

Often the question is asked, just how much is enough?

The Association of Superannuation Funds of Australia Ltd has developed a retirement standard that benchmarks the annual budget needed by Australians to fund either a ‘comfortable’ or ‘modest’ standard of living.  Updated quarterly to reflect inflation, it provides both singles and couples with an indication of what they would need to support their lifestyle.

According to the standard, a modest lifestyle is defined as better than one afforded by the Age Pension, but a lifestyle that still only enables you to afford fairly basic lifestyle activities..

On the other hand, a comfortable lifestyle would enable a healthy retiree to be involved in a broad range of leisure and recreational activities, and to have a good standard of living through the purchase of such things as; household goods, private health insurance, a reasonable car, good clothes, a range of electronic equipment, and domestic and occasionally international holiday travel.

(More information about the expenditure items in the above classifications are documented on the AFSA website).

Source:  The Association of Superannuation Funds of Australia Ltd Retirement Standard

To ensure this is achievable, you need to think about how much in accumulated investments or superannuation you would need to be able to fund a comfortable retirement, or your desired income level. In addition, with people now living longer, on average 20 years post retirement, be careful not to underestimate the longevity of retirement and your associated needs. This is where planning for retirement can get a bit tricky and standard projections can only be used as a general guide. There are a number of important questions that you need to consider that relate to your own personal situation. For example:

  • Do you want to leave an inheritance for your children?
  • Are you concerned about aged care costs and how you will fund them?
  • Will you be eligible for an Age Pension?
  • What investment return should you assume?  This is a critical input, as a small variation in returns can have a big impact on the longevity of your capital.

Presuming you would like to preserve the real value of your capital throughout retirement, we suggest a couple would need around $500,000 in superannuation savings to fund a modest retirement and $900,000 to fund a comfortable retirement, based on the ASFA standard and a constant 6% per annum investment return.

This does not take into account aged pension entitlements that you may receive nor does it allow for the payment of aged care costs.  Usually couples with assets of $500,000 would be entitled to a part-pension once they reached age pension age.

Of course, accumulating larger capital balances prior to retirement would give you more choice and comfort throughout your later years.

Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email info@hewison.com.au or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.